Metals add shine to the markets

Wed, 17 Feb 09:30 am

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Led by strong buying in metal stocks, as also on the back of positive global cues, Indian markets have opened today on a positive note. Gains are also seen in stocks from the realty, capital goods, and auto sectors. As for the broader markets, there are almost four gainers for every stock that is down currently on the BSE.

The BSE Sensex and NSE Nifty are currently trading with gains of around 170 points (1.1%) and 55 points (1.1%) respectively. Mid and small cap stocks are also trading in the positive. The BSE Midcap and BSE Smallcap indices are up by 0.9% apiece. The rupee is trading at 45.95 against the US dollar. Most Asian markets are also trading in the positive. Key gainers include China (up 1.1%), Hong Kong (1.9%), and Japan (2%). The US markets closed yesterday 1.7% up, led by improved economic reports and better results from some blue chip companies.

Coming back to the Indian markets, metal stocks are leading at the start of trade today. Key gainers here include Tata Steel, JSW Steel, and Hindalco. Tata Steel, India's largest and the world's fifth largest steelmaker yesterday announced its consolidated results (including Corus) for the December 2009 quarter. The company reported a 42% YoY decline in net profits during the quarter. This came on the back of a 21% YoY decline in sales and higher tax expenses. Otherwise, its operating profits grew by 2% YoY led by an improvement in operating margins to 11.3% (from 8.7% in 3QFY09). The rise in operating margins was led by higher volume sales of steel as also higher realisations. The company continues to suffer because of recession in the European market. This is even as the developing world of China and India are seeing robust demand due to investments in infrastructure and automobile sectors. What else would explain the 49% YoY growth in volumes that the company had recently reported for its Indian operations as part of its standalone performance reporting?

After ending as the top loser among heavyweights for two consecutive days, Bharti Airtel is back in the positive today. Statements made by the company's Chairman with respect to the long-term benefits that the Zain Africa (Zain) deal provides are the likely reasons for the same. Mr. Sunil Mittal has also indicated that the company is looking to seal the deal by 25th March, given that it is currently doing the last round of due diligence of Zain's books. While he has not clarified as to the ways of funding the deal, the total payout from Bharti is expected to be around US$ 9 bn. The earlier figure of US$ 10.7 bn included a net debt of US$ 1.7 bn that is there on Zain's balance sheet.

We are of the belief that it is too early to draw any conclusions on whether this deal is valuable or not for Bharti. What we however know is that African telecom market has a high growth potential, given that less than 50% of the population have mobile phones. Also by expanding its business outside the country, Bharti will have the economies of scale to get more cost-efficient. It is also important to remember that the company's aggressiveness in moving to international markets is coming at a time when the Indian mobile service market is facing fierce competition. Given this, it is natural for the company to look beyond the Indian shores. And what better option can there be than Africa, a region that shares several of India's characteristics that have brought success to Indian telecom companies - low incomes and affordable tariffs, and a large rural population.